Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading

Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter invest-ments into new technologies at the company level. We apply a real options-based approach to assess the impact of climate change policy in the form of a constant or growing price floor on investment decisions of a single firm in a competitive environment. This firm has the opportunity to switch from a high-carbon “dirty” technology to a low-carbon “clean” technology. Using Monte Carlo simulation and dynamic programming techniques for real market data, we determine the optimal CO2 price floor level and growth rate in order to induce investments into the low-carbon technology. We show these findings to be robust to a large variety of input parameter settings.Carbon price, price floor, technological change, investment decision, real option approach

CHORUS Deliverable 4.1: Report of the 1st CHORUS Workshop

Minutes of Rocquencourt Workshop – INRIA March 13, 200

Urwaldrelikt-Arten - Xylobionte Käfer als Indikatoren für Strukturqualität und Habitattradition

On the basis of the list of saproxylic beetles of Germany, the authors present a definition and list of “Urwald relict species”, comprising 115 beetles that are considered to be associated with primeval forest (“Urwald”) structures and features. We use the term “habitat tradition” to describe a continuity in supply of old growth dead wood and forest structures. The selection of species is made on behalf of the following criteria: relict records in Central Europe; attachment to continuity of deadwood resources and habitat tradition; continuity of old growth stand features like tree and deadwood maturity and di-versity; absence from cultivated Central European forest.Urwaldrelikt-Arten - Xylobionte Käfer als Indikatoren für Strukturqualität und Habitattradition Auf der Basis der Liste xylobionter Käfer Deutschlands legen die Autoren eine Definition und Liste von 115 Käferarten vor, die in Deutschland als Urwaldreliktarten bezeichnet werden können. Wir definieren die Kontinuität eines Bestandes hinsichtlich Totholzangebot und Bestandsstruktur als „Habitattradition“. Die Auswahl der Arten erfolgt anhand folgender Kriterien: Reliktäres Vorkommen in Mitteleuropa; Bindung an Strukturkontinuität bzw. Habitattradition sowie Kontinuität der Alters- und Zerfallsphase; hohe Ansprüche an Totholzqualitäten und –quantitäten; aus den kultivierten Wäldern Mitteleuropas verschwindend oder schon verschwunden

Euro area private consumption: Is there a role for housing wealth effects

This paper adds to the literature on wealth effects on consumption by disentangling financial wealth effects from housing wealth effects for the euro area. We use two macro-datasets for our estimations, one on the aggregate euro area for the period 1980-2006, and one on the individual euro area countries from1995-2006, using panel data techniques. The impact of all wealth variables on euro area consumption is significant and positive in most specifications for both datasets. The marginal propensity to consume (MPC) out of financial wealth is roughly in line with the literature, with 2.4 to 3.6 cents per euro of financial wealth spent on consumption according to the estimations with euro area aggregate data. However, the panel estimation yields somewhat lower results (0.6 to 1.1 cents). The MPC out of nominal housing wealth lies between 0.7 to 0.9 cents per euro for both datasets. When specifying housing wealth in real terms, i.e. when taking out the effect of volatile house prices, we find similar effects in the times series estimation while the MPC is larger in the panel estimation (2.5 cents). JEL Classification: E21Consumption, euro area, financial wealth, housing wealth

Please Bring me the New York Times – On the European Roots of Richard Abel Musgrave

Richard Musgrave was one of the around 200 academic economists who emigrated from Germany when Fascism came to dominate the country. This memorial lecture traces the German and European roots of Richard Musgrave’s oeuvre, trying to shed light on his family background as well as on the political and scientific factors that influenced his education as an economist. Particular emphasis is given to the development of his notion of public goods.Richard Musgrave, Public Finance and Economic Thought

Firm Investment and Monetary Policy Transmission in the Euro Area

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned about the interest channel and the broad credit channel. For each of those countries, we estimate neoclassical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro-area countries. We also find investment in all countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries. -- In einer vergleichenden Betrachtung untersuchen wir die Kanäle monetärer Transmission bezüglich des einzelwirtschaftlichen Investitionsverhaltens in den vier größten Ländern des Euro-Währungsraums (Deutschland, Frankreich, Italien und Spanien). Bei unserer Untersuchung des Zinskanals und des Kreditkanals können wir auf ausgesprochen reiche Datensätze mit insgesamt 215.000 Beobachtungen zurückgreifen. Für jedes dieser Länder schätzen wir neoklassische Investitionsgleichungen, bei denen das Investitionsverhalten durch die Kapitalnutzungskosten, den Absatz und den cash flow erklärt werden. In allen vier Ländern reagiert das Investitionsverhalten auf Änderungen der Kapitalnutzungskosten. Dies zeigt die Wirksamkeit eines Zinskanals in diesen Ländern. Weiterhin erweist sich in allen Ländern der betriebliche cash flow als wichtige Determinante für das Investitionsverhalten. Allerdings reagieren nur in Italien kleine Firmen stärker auf Änderungen des cash flows als große Firmen. Dies läßt darauf schließen, daß der Kreditkanal der monetären Transmission nicht in allen Ländern von gleicher Bedeutung ist.Investition,Monetäre Transmission,Kapitalnutzungskosten,investment,monetary transmission,user cost of capital

Model misspecification, learning and the exchange rate disconnect puzzle

Rational expectations models fail to explain the disconnect between the exchange rate and macroeconomic fundamentals. In line with survey evidence on the behaviour of foreign exchange traders, we introduce model misspecification and learning into a standard monetary model. Agents use simple forecasting rules based on a restricted information set. They learn about the parameters and performance of different models and can switch between forecasting rules. We compute the implied post-Bretton Woods US dollar-pound sterling exchange rate and show that the excess volatility of the exchange rate return can be reproduced with low values of the learning gain. Both assumptions, misspecification and learning, are necessary to generate this result. However, the implied correlations with the fundamentals are higher than in the data. Including more lags in the model tends to tip the balance of our findings slightly towards rational expectations and away from the learning hypothesisexchange rate, disconnect, misspecification, learning

The Stage Through Slanted Eyes: An Examination of the Current State of Asian Americans in Theatre

Deep-set racial prejudices and stereotypes in American society greatly impact how Asian Americans are perceived onstage and in everyday life. The Stage Through Slanted Eyes: An Examination of the Current State of Asian Americans in Theatre delves into the history of these prejudices and looks at how a performer\u27s race can impact his or her theatrical career

Application of flexible functional forms to substitutability among metals in U.S. industries

This report looks at the use of a new functional form - the Symmetric Generalized Mcfadden Cost Function (SGM) - to estimate substitutability among metals in five U.S. industries. The SGM specification has the advantage of imposing curvature conditions globally on the cost function, thus ensuring that the results satisfy basic, widely believed economic theory. For the first time, this study assumes separability in estimating an SGM system, and experiments with a"bootstrapping"technique to estimate the standard errors of parameters derived from flexible functional forms. The paper provides empirical evidence of structural change in U.S. industry. A jump in the own-price elasticities of energy during the sample period coincided with a sharp increase in oil prices. The SGM flexible functional form found aluminum and steel to be complementary in four out of five industries but suggests that they are substitutes in the technically compensated sense: when total metals use is constant, an increase in the price of one metal reduces consumption of that metal and increases consumption of the other. Use of the bootstrapping technique provided insights into the stability of the elasticity estimates. The results are promising at the aggregate level when the number of free parameters is not large compared to the sample size. Bootstrapping also clarifies the problem at the disaggregated level where most elasticities are not significantly different from zero.Primary Metals,Mining&Extractive Industry (Non-Energy),Montreal Protocol,Environmental Economics&Policies,Coastal and Marine Resources

Global Warming and German Agriculture

This study uses the concept of shadow prices for measuring the impacts of climate change. Estimation of a restricted profit function rather than a cost or a production function increases the explanatory power of the agroclimate approach because of an endogenous output structure. Using micro-based panel data on Western German farmers, the results im-ply that the agricul-tural production process is significantly influenced by climate conditions. By linking this model with a climate-change scenario, a remarkable positive shadow value is found for the German agricultural sector. Interestingly, the spatial distribution of the gains shows no concentration on those regions, which currently suffer from insufficient temperature. Finally, the importance of an endogenous output structure is confirmed by the finding that the de-sired product mix will drastically change.